The World is Turning Japanese [Chart]
Negative rates, Kuroda’s “Peter Pan” analogy, and gold’s surge
The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
Nearly a year ago, Bank of Japan governor Haruhiko Kuroda described the unlikely inspiration behind Japan’s unprecedented monetary stimulus: Peter Pan.
I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘the moment you doubt whether you can fly, you cease forever to be able to do it’. Yes, what we need is a positive attitude and conviction. Indeed, each time central banks have been confronted with a wide range of problems, they have overcome the problems by conceiving new solutions.
Kuroda’s optimism is desperately needed in a country that has now been officially “leapfrogged” by the four Asian Tigers in terms of Real GDP per capita (PPP). With over a decade of experimentation in extreme monetary policy under their belts, Japan has very little to show for it.
It would be fine if this story of economic malaise could be confined as a global outlier. However, recent circumstances have prodded the world’s central bankers to finally buy into the tale of Peter Pan.
The world is turning Japanese.
So Much Negativity
Negative interest rates were an economic pipe dream many decades ago, but the idea of “charging” interest to hold money is now becoming mainstream. Conventional wisdom was that depositors would just hoard cash rather than depositing at a cost, but now the people running central banks are beginning to believe that this fear is misplaced. Especially as society becomes more cashless, the inconvenience of withdrawing money to save a few bucks isn’t worth it.
Central banks in Switzerland, Sweden, Denmark, and Japan now all have negative interest rates. The ECB has also held their Deposit Facility Rate for overnight deposits in the negative since June 2014.
In recent weeks, the interest in this economic experiment has risen significantly. Sweden cut their rates deeper into negative territory, signalling to the rest of the world that there is nothing to fear. Meanwhile, both the Federal Reserve and the Bank of Canada have openly pondered the possibility of NIRP in their respective jurisdictions.
Not everyone agrees with the central bankers in seeing the Peter Pan analogy to be a fitting representation.
We’d liken it more to a squad of musketeers running out of gunpowder, and turning desperately to their bayonets to win a decision. It doesn’t matter how much conviction and optimism the crew has in their bayonet skills – at the end of the day, it’s only going to add a few extra minutes of life into the inevitable battle against a much more powerful deflationary force.
In other words, “hope” isn’t a strategy that central bankers can use to any efficacy, and wishful thinking can only go so far. The market seems to agree, and it’s part of the reason that stocks have sold off this year. Even the “safe haven” gold trade is back, after being absent for much of the previous year.
Many critique assets such as gold, which is up 15% year-to-date, because it does not pay a dividend or interest.
This may be true, but at least gold does not “charge” interest, as bankers across the world are beginning to ponder.
Mapped: The 10 Largest Gold Mines in the World, by Production
Gold mining companies produced over 3,500 tonnes of gold in 2021. Where in the world are the largest gold mines?
The 10 Largest Gold Mines in the World, by Production
Gold mining is a global business, with hundreds of mining companies digging for the precious metal in dozens of countries.
But where exactly are the largest gold mines in the world?
The above infographic uses data compiled from S&P Global Market Intelligence and company reports to map the top 10 gold-producing mines in 2021.
Editor’s Note: The article uses publicly available global production data from the World Gold Council to calculate the production share of each mine. The percentages slightly differ from those calculated by S&P.
The Top Gold Mines in 2021
The 10 largest gold mines are located across nine different countries in North America, Oceania, Africa, and Asia.
Together, they accounted for around 13 million ounces or 12% of global gold production in 2021.
|Rank||Mine||Location||Production (ounces)||% of global production|
|#1||Nevada Gold Mines||🇺🇸 U.S.||3,311,000||2.9%|
|#5||Pueblo Viejo||🇩🇴 Dominican Republic||814,000||0.7%|
|#6||Kibali||🇨🇩 Democratic Republic of the Congo||812,000||0.7%|
|#8||Lihir||🇵🇬 Papua New Guinea||737,082||0.6%|
|#9||Canadian Malartic||🇨🇦 Canada||714,784||0.6%|
Share of global gold production is based on 3,561 tonnes (114.5 million troy ounces) of 2021 production as per the World Gold Council.
In 2019, the world’s two largest gold miners—Barrick Gold and Newmont Corporation—announced a historic joint venture combining their operations in Nevada. The resulting joint corporation, Nevada Gold Mines, is now the world’s largest gold mining complex with six mines churning out over 3.3 million ounces annually.
Uzbekistan’s state-owned Muruntau mine, one of the world’s deepest open-pit operations, produced just under 3 million ounces, making it the second-largest gold mine. Muruntau represents over 80% of Uzbekistan’s overall gold production.
Only two other mines—Grasberg and Olimpiada—produced more than 1 million ounces of gold in 2021. Grasberg is not only the third-largest gold mine but also one of the largest copper mines in the world. Olimpiada, owned by Russian gold mining giant Polyus, holds around 26 million ounces of gold reserves.
Polyus was also recently crowned the biggest miner in terms of gold reserves globally, holding over 104 million ounces of proven and probable gold between all deposits.
How Profitable is Gold Mining?
The price of gold is up by around 50% since 2016, and it’s hovering near the all-time high of $2,000/oz.
That’s good news for gold miners, who achieved record-high profit margins in 2020. For every ounce of gold produced in 2020, gold miners pocketed $828 on average, significantly higher than the previous high of $666/oz set in 2011.
With inflation rates hitting decade-highs in several countries, gold mining could be a sector to watch, especially given gold’s status as a traditional inflation hedge.
How to Avoid Common Mistakes With Mining Stocks (Part 5: Funding Strength)
A mining company’s past projects and funding strength are interlinked. This infographic outlines how a company’s ability to raise capital can determine the fate of a mining stock.
A mining company’s past projects and funding strength are interlinked, and can provide clues as to its potential success.
A good track record can provide better opportunities to raise capital, but the company must still ensure it times its financing with the market, protects its shareholders, and demonstrates value creation from the funding it receives.
Part 5: The Role of Funding Strength
We’ve partnered with Eclipse Gold Mining on an infographic series to show you how to avoid common mistakes when evaluating and investing in mining exploration stocks.
Part 5 of the series highlights six things to keep in mind when analyzing a company’s project history and funding ability.
View all five parts of the series:
- 1. Common mistakes made with the team
- 2. Common mistakes made with the business plan
- 3. Common mistakes with the jurisdiction of the project
- 4. Common mistakes with the project and technical risks
- 5. Common mistakes with raising money
Part 5: Raising Capital and Funding Strength
So what must investors evaluate when it comes to funding strength?
Here are six important areas to cover.
1. Past Project Success: Veteran vs. Recruit
A history of success in mining helps to attract capital from knowledgeable investors. Having an experienced team provides confidence and opens up opportunities to raise additional capital on more favorable terms.
- A team with past experience and success in similar projects
- A history of past projects creating value for shareholders
- A clear understanding of the building blocks of a successful project
A company with successful past projects instills confidence in investors and indicates the company knows how to make future projects successful, as well.
2. Well-balanced Financing: Shareholder Friendly vs. Banker Friendly
Companies need to balance between large investors and protecting retail shareholders. Management with skin in the game ensures they find a balance between serving the interests of both of these unique groups.
- Clear communication with shareholders regarding the company’s financing plans
- High levels of insider ownership ensures management has faith in the company’s direction, and is less likely to make decisions which hurt shareholders
- Share dilution is done in a limited capacity and only when it helps finance new projects that will create more value for shareholders
Mining companies need to find a balance between keeping their current shareholders happy while also offering attractive financing options to attract further investors.
3. A Liquid Stock: Hot Spot vs. Ghost Town
Lack of liquidity in a stock can be a major problem when it comes to attracting investment. It can limit investments from bigger players like funds and savvy investors. Investors prefer liquid stocks that are easily traded, as this allows them to capitalize on market trends.
- A liquid stock ensures shareholders are able to buy and sell shares at their expected price
- More liquid stocks often trade at better valuations than their illiquid counterparts
- High liquidity can help avoid price crashes during times of market instability
Liquidity makes all the difference when it comes to attracting investors and ensuring they’re comfortable holding a company’s stock.
4. Timing the Market: On Time vs. Too Late or Too Early
Raising capital at the wrong time can result in little interest from investors. Companies in tune with market cycles can raise capital to capture rising interest in the commodity they’re mining.
Being On Time:
- Raising capital near the start of a commodity’s bull market can attract interest from speculators looking to capitalize on price trends
- If timed well, the attention around a commodity can attract investors
- Well-timed financing will instill confidence in shareholders, who will be more likely to hold onto their stock
- Raising capital at the right time during bull markets is less expensive for the company and reduces risk for investors
Companies need to time when they raise capital in order to maximize the amount raised.
5. Where is the Money Going? Money Well Spent vs. Well Wasted
How a company spends its money plays a crucial role in whether the company is generating more value or just keeping the lights on. Investors should always try to determine if management is simply in it for a quick buck, or if they truly believe in their projects and the quality of the ore the company is mining.
Money Well Spent:
- Raised capital goes towards expanding projects and operations
- Efficient use of capital can increase revenue and keep shareholders happy with dividend hikes and share buybacks
- By showing tangible results from previous investments, a company can more easily raise capital in the future
Raised capital needs to be allocated wisely in order to support projects and generate value for shareholders.
6. Additional Capital: Back for More vs. Tapped Out
Mining is a capital intensive process, and unless the company has access to a treasure trove, funding is crucial to advancing any project. Companies that demonstrate consistency in their ability to create value at every stage will find it easier to raise capital when it’s necessary.
Back For More:
- Raise more capital when necessary to fund further development on a project
- Able to show the value they generated from previous funding when looking to raise capital a second time
- Attract future shareholders easily by treating current shareholders well
Every mining project requires numerous financings. However, if management proves they spend capital in a way that creates value, investors will likely offer more funding during difficult or unexpected times.
Wealth Creation and Funding Strength
Mining companies that develop significant assets can create massive amounts of wealth, but often the company will not see cash flow for years. This is why it is so important to have funding strength: an ability to raise capital and build value to harvest later.
It is a challenging process to build a mining company, but management that has the ability to treat their shareholders and raise money can see their dreams built.
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